Why Continuous Improvement is a Habit in American Business

Usually in negotiations with management, the acquirer offers stocks at a designated exchange ratio. Should the bought firm accept an offer at a reasonable premium above the current market price of stock, the merger could go place. Sometimes contingent payments—such as stock warrants—are also given. For mergers, buyers could employ common stock, preferred stock, convertible bonds, debt, cash, and warrants among numerous finance packages. The final package's effect on current earnings per share (EPS) determines much of what to choose. A tax-free exchange results from common stock exchanges, in which case the seller's stock is given to the buyer. The disadvantage is that the outstanding shares of the buyer boost the stock issue reduces earnings per share. A taxable transaction results when cash is exchanged for common stock from the selling corporation. Since the buying company is getting fresh earnings without increasing increment, this kind of exchange could boost EPS.Finding businesses that will fit the general strategy comes next.

Is the hiding of the scheme crucia If so the search

For suitable businesses gets rather more challenging. Under these conditions most managers have discovered that hiding is a relative concept. Among those who have worked in mergers, the old cynic's observation—that two can keep a secret if one of them is dead—has a lot of credence. Usually the best course of action is to open the doors and wail in the market for an acquisition or merger. Practically, this can be achieved only by passing the word—either personally or by advertisement—to your business contacts, attorneys, brokers, and bankers under your affiliation. Establishing two or three benchmarks by which to evaluate prospective acquisitions helps one to determine whether they are worthy of further investigation. Given this is an initial preliminary screening, the criteria should be as objective as possible and competent of straightforward application based on easily obtained data. Some striking benchmarks are those shown above.Of course, your first filtering will let some great deals pass through. More importantly, the use of any arbitrary criterion is probably going to weed out some excellent offers. However, an arbitrary approach of elimination is preferable than none at all in cases when there is a lot of options. Finding possible acquisition candidates starts with creating a universal list of every company that seems to fit the requirements. Several sources should be checked out. Usually with some extra information, easily available electronic databases can yield 80 to 90 percent of the names. Other sources of candidate material include the following.The law of declining returns naturally applies to the last few names, but more than 95 percent of the qualified applicants that exist may be found quickly.

It sounds like a challenging and time

Consuming chore to screen several hundred firms looking for the most appealing applicants. Applying unambiguous knockout criteria like size or geography actually rapidly decreases the number of organizations to a reasonable count. Ten or fifteen top prospects should come from a comparison of the remaining against the other criteria. The chore of compiling thorough data on the smaller candidate count is not nearly as difficult. The prospect identification procedure also helps the acquirer to sense the dynamics of the target sector. One can readily compile at the same time competitive situations, industry growth patterns, profit margins, and other vital statistics. Another good exercise is examining the traits that set outstanding industry players apart. Once the internal procedure is over, one should go outside for suitable candidates—financial middlemen. About two thirds of all merger deals involve an investment banker or broker generally. Establishing contacts with middlemen will help one to have an early view of as many possibilities as possible—to be connected into the acquisition strategy, describe what a company wants to accomplish by the purchase and how the acquisition will complement the company's whole strategy. Companies and sectors are then examined using several quantitative criteria and with regard for qualitative elements. By use of industry comparison with defined industry criteria, the wide industry categories should be reduced. Then chosen is the sector most fulfilling the goal. Companies in the target industry are then under scrutiny following their identification.

To ascertain the company's relative position

Be sure to match the trend of the target to industry averages. Clearly defined criteria should be established for acceptable candidates, all companies within the category should be investigated, suitable companies should be listed in priority order, and a short list of targets (usually no more than 10) closest to the ideal profile should be produced in identifying an acquisition target. Either all companies or the top scoring corporations depending on score can make up this short list. Important to you personally are industry categorization, size, profitability, leverage, market share, and geographic area; these are the profile criteria. You might not be able to get your initial option, hence you will require flexibility. Depending on importance to you, different factors should have different weights. The weight could range, for instance, from 1 (least important) to 10 (most important). You might chose, for instance, to give industry a 10 and dividend history a 1. Most criteria will range from 1 to 10 (e.g., leverage may be assigned a weight of 2 if all candidates have already been evaluated to have a debt-to---equity ratio below 25%). One can also score intermediate values inside a range. Revenues under $100 million or above $300 million, for instance, may earn a 4. A useful grading guide tracks "deal flow."